In its Tuesday earnings announcement, Broadcom (UNKNOWN:BRCM.DL) reported $2.06 billion in sales for Q1, which came in about $0.05 billion ahead of analyst consensus, and $0.64 per share in non-GAAP earnings, cruising past analyst consensus of $0.60.
The company also issued revenue guidance in the range of $2.1 billion, give or take $75 million, for the current quarter, which was ahead of the analyst consensus of $2.07 billion. Let's take a closer look at what drove the strong results and forward guidance for the company.
Strength came from broadband and connectivity
Broadcom had expected its Broadband and Connectivity business to be down sequentially, and this was indeed the case. However, the company says the sequential decline was lower than expected because of better-than-expected results from the company's wireless connectivity business as well as its broadband modem business. The segment saw sales of $1.408 billion, representing 13% growth year over year.
In particular, CEO Scott McGregor said on the call that wireless connectivity strength was driven by "successful new smartphone launches" as well as "increasing penetration of 802.11ac and 2-by-2 solutions." In short, Broadcom appears to be seeing both unit shipment strength as well as a richer mix of products.
McGregor also pointed to strong customer interest for its new Wi-Fi combo chips as well as its recently announced location hub, both of which McGregor indicated should help drive Broadcom's average selling prices up in coming quarters.
Finally, McGregor said that for the coming quarter, Broadcom expects its broadband and connectivity business to be flat to up a bit in the current quarter.
Networking and infrastructure playing out well
Broadcom had previously guided to approximately flat revenues in its networking and infrastructure business, and it hit that, delivering $631 million in revenue compared to $625 million last quarter. This represents a respectable year-over-year improvement of about 6.23%.
McGregor attributed this year-over-year growth to strength in its network switch as well as its PHY products. In fact, McGregor said the company saw record network switch revenue and noted that within the last year, the company has introduced no less than eight new switch products.
According to McGregor, the company's infrastructure and networking business should be up sequentially next quarter.
A quick note on the health of the low end of Broadcom's connectivity business
Back when Broadcom announced its exit from the cellular baseband market, executives cautioned investors that its exit from that market could lead to share loss at the low end of the connectivity chip market. The revenue Broadcom's executives said was "at risk" was somewhere in the range of $500 million to $800 million.
Interestingly enough, Broadcom executives are now saying that the company not only didn't lose share in the low end of the market, but it actually appears to be gaining share. This is because some of the baseband chip vendors Broadcom works with to include the latter's connectivity chips appear to be gaining market segment share. This is a pretty major positive for the health of the company's connectivity business.
The only real "blemish" -- another NetLogic writedown
Broadcom acquired network processor vendor NetLogic back in 2011 for $3.7 billion in a bid to be able to address more segments within networking. The company took an impairment charge on this acquisition back in mid-2013, and it just announced that it took yet another impairment charge to the tune of $135 million on NetLogic.
The company said in its 10-Q filing that this impairment charge comes as a result of a "reduction in the size of the addressable market for [Knowledge Based Processors]." This reduction is, according to Broadcom, due to two drivers.
First, the functionality of KBPs is being integrated into Broadcom's Ethernet switches. Next, some of the company's customers are reportedly choosing to roll their own KBPs rather than use Broadcom's merchant solutions.
All told, this was a strong quarter and guidance from Broadcom. The company operates in strong end markets and, more importantly, its competitive positioning within those markets is quite good.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.